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Billion-dollar online gaming industry seeks clarity on valuation, taxation

  • Aug 12, 2021
  • pitchhigh
  • 491

The online gaming industry is expected to grow at a compound annual growth rate (CAGR) of 22% to $ 2 billion by 2023, up from $ 906 million in 2019, according to a report by the All India Games Federation (AIGF) and EY India. Driven largely by a young tech-savvy population, wide internet coverage, better performing smartphones at affordable prices. India is now the fifth largest online gaming market in the world and is expected to grow even further after. of the digitization caused by Covid-19. virus. Online games are also the fourth largest sub-segment of the media and entertainment industry. The report stated that online game players are expected to grow from 360 million in 2020 to 510 million in 2022. While real money online game players are expected to grow from 80 million in 2020 to 150 million in 2023. The results revealed that by creating more than 11,000 jobs, the esports sector is estimated to generate around $ 100 billion in economic value for India between 2021 and 2025, including investments, in-app purchases and profits. Looking at the industry growth prospects, the report also looks at the effects of GST and obstacles that could affect the industry's business operations. He said that the tax rate should not exceed 20% as this could lead to gaming operators and consumers not joining the government licensing system and entering the gray market.  Online games operate on a "fee" model in which the gaming platform charges additional fees to facilitate play or "freemium" models where play is free, but additional features may require the user to purchase certain items from an immediate price. The report said that the rational imposition of a GST is important for the sustainability of the industry. The vast majority of countries tax the online gaming industry at or below standard GST / VAT rates. The most common mode of taxation is based on commissions (platform fees) earned by industry players in markets such as the United States, the United Kingdom, and EU countries (except France). In some countries (e g South Africa, Singapore and Australia), a credit model is followed in which the total value of bets is taxed at a discretionary discount allowed on payments (prizes) made to players. "Valuation disputes under the Goods and Services Tax Act (GST) have been daunting for the industry. Most importantly, regressive taxes for these emerging sectors can make companies unsustainable in India. Our recommendation is that tax authorities should align their policies with internationally accepted tax principles. In the industry, online games provide certainty to the industry. " The report highlighted the much-discussed issue of the legality of online gaming in India and stated that various higher courts across the country have held that Rummy, Poker, and Fantasy Sports are games of skill and do not amount to gambling. Electronic sports must also qualify as a game of skill by applying the principles established by the courts. EY partner Bipin Sapra said: "The government needs to state & clarify that games of skill like games of rummy, fantasy, poker, etc., which are different from games of chance like lottery, gambling, Random games are taxed at the GST rate. Normal services will be 18% and the taxable value is the platform fee or commission fee. Clarifying this meaning would give certainty to the industry and encourage more investment in this sector ". Also Read- Lionel Messi signs two-year contract with Paris Saint-Germain after leaving Barcelona